Pinecone – deploying the Swedish acquirer model in Japan

Gustaf Hakansson
June 7, 2023
“The Swedish model addresses the shortcomings of the conventional private equity model in Japan”

Disclaimer: This is not investment advice. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. Any reference to or omission of any reference to any company should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. The author may hold positions in securities discussed. Any forward looking-statement is subject to risks and uncertainties. Read further disclosure in the Terms of Service.

Gustaf: Hi Shu and Andrew. As the recent founders of Pinecone, could you share your prior experiences with SME succession?

Shu: My family was originally from Shizuoka, a prefecture southwest of Tokyo, bordering Mount Fuji. It’s famous for green tea and Sakura shrimp. Our family business is a used-car dealership network – dealing mainly Suzuki cars – that my grandfather started in 1958.

When my grandfather passed away unexpectedly, succession became a stressful and messy problem for the entire family. Despite the business being profitable, there was simply no real solution on the table for a succession to a third party.

Members of my family had to return to Shizuoka to work in the business. Basically, it turned out poorly, and this dragged on for the better part of a decade…

Andrew: My experience with business succession was in relation to having bought a small sanitary hygiene business in Queensland, Australia, from an owner-operator wanting to retire. It was a great little business with a sticky, recurring customer base but not really all that interesting to corporate buyers due to its size.

I gained an appreciation for how SMEs worked as I had to get hands-on, given the systems and processes were pretty much all sitting inside the owner’s head. The ERP was literally a shoebox full of hand-written index cards!

On the flip side, this also meant many low-hanging fruits where some simple off-the-shelf software solutions made a huge difference to the business. We still own this business after eight years, and today it is roughly five times the size and generating significant cashflow under professional management.

Gustaf: What’s the opportunity in Japan? How does Pinecone fit in?

Andrew: Whilst Japan has famously led the world in its ageing demographics, I always like to remind people that Japan is not unique in facing these challenges – Japan is simply the first in a global trend. And there will also be opportunities even if you take a glass-half-empty approach.

One observation is that Japan’s post-war generation of company founders is now in their 70s. Official government estimate is that roughly 60,000 profitable SMEs every year will require succession to third parties over the next decade.

Shu: For Japanese family businesses, there has historically been a fair degree of stigma in selling your life’s work to a third party. However, this is rapidly changing – partly by the booming M&A brokerage industry and partly by government agencies such as METI (Ministry of Economic, Trade and Industry), who are aggressively educating and shaping perception.

In other words, many high-quality businesses that have been privately held for decades are now becoming available for acquisition.

Shu: To this end, we have gone out and “pounded the pavement”, and we’ve validated that the opportunities are very real and not merely theoretical. So far, we’ve established relationships with 35 brokers, and we have a systematic process where we’re reaching out to add more brokers into our eco-system every week.

We are quite happy with the deal pipeline we’ve built, and in fact, we are well progressed through the process with a couple of targets.

Valuation-wise, we are finding high-quality businesses available at 3x-6x EBIT, which we believe is fairly comparable with SME valuations globally.

Andrew: The next question is, what is the best way to acquire and operate these SMEs? We’ve observed that the traditional private equity model often requires you to make aggressive business changes very quickly because you need to be re-selling the business for a profit within 3 to 5 years.

That doesn’t really work well with Japanese SMEs that have been operating stably and profitably for a long time.

We had our “a-ha” moment when we came across the Swedish Serial Acquirers model, which we felt directly addresses the key shortcomings of the conventional private equity model, especially in the Japanese market. Essentially, the model felt close to the Berkshire Hathaway perpetual capital approach. And the best thing is that it has been repeatedly proven in the SME space.

Gustaf, this is where your website and excellent handbook have been really helpful for us in terms of helping our research and understanding some of the nuances of the Swedish Serial Acquirers model.

Shu: The other point is that Swedish culture and business norms are much more closely aligned with Japanese culture and business norms, and that’s where we thought the stars were aligned!

We have received excellent on-the-ground feedback when we put this model in front of Japanese vendors. In one competitive process, we were actually given exclusivity because the vendor preferred our model.

Gustaf: What type of firms are you targeting, and how do you plan to manage them post-transaction?

Andrew: We’re reasonably agnostic around industry sectors, but generally, the simpler the business, the better. We like to focus more on the characteristics of the companies and the competitive dynamics. And we prefer to be a big fish in a small pond.

The SMEs we target (typically US$1m to US$5m in EBIT) are generally either within specialized or niche sectors or have a stranglehold on a specific segment of an industry value chain.

In terms of managing the businesses post transaction, our starting point is that “the less we have to do post acquisition, the better”. This has been somewhat shaped by my experience in microcap private equity investing and Shu’s experience in strategic management and restructuring consulting.

In other words, we don’t want to predicate our investment case on having to successfully execute some initiatives to deliver satisfactory returns for our investors. And that gives us a margin of safety.

Obviously, in these long-standing family businesses, there can often be some relatively low-hanging fruits which we will try and pick. The sanitary hygiene business I acquired had just a Yellow Pages entry and no website.

A simple initiative was to just put in place a website and then start running Google Adwords. That gave us double-digit revenue growth immediately. We calculated that this marketing investment delivered higher ROIC than anything else we could deploy our capital towards.

Gustaf: What’s your structure? How can investors and business owners contact you?

Shu: So, over the past few months, we have been working very closely with the Financial Services Agency of Japan to set ourselves up to raise and deploy capital legally. The FSA has been highly supportive of our mission, and we’re now in advanced discussions with other government-affiliated organizations who have expressed interest in providing both financial and non-financial support.

In terms of structure, the trick is how we align a “perpetual investment holding” with the practical needs of our investors – namely that at some point in time, they will need to realize their investments.

Once again, the Swedish Serial Acquirers model already has an answer. We will target an IPO of Pinecone on the Tokyo Stock Exchange within a couple of years to provide our investors with liquidity and, at the same time, provide a “permanent home” for our SMEs.

As for our immediate goal, we are pushing ahead to get our first investment across the line as soon as possible.

Anyone interested in learning more about what we’re doing can find us at

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Chris Mayer
Author of 100-Baggers
PM & co-founder, Woodlock House Family Capital
Brett Kelly
Founder & CEO
Kelly+Partners Group